Bristol-Myers Squibb released new Opdivo data at the European Society of Medical Oncology, or ESMO, annual meeting, which will likely lead to lost ground in the largest immuno-oncology indication of first-line non-small cell lung cancer, but Opdivo remains in a solid position with several other cancer indications, and we don’t expect any major changes to our $71 fair value estimate. Further, while Merck’s Keytruda benefits from the Opdivo setback, we had already forecast robust Keytruda sales, and we don’t expect any significant changes to our Merck fair value estimate of $65. Additionally, both Bristol and Merck, along with Roche Holding and AstraZeneca , are well positioned to reinforce their economic moats with transformative new immuno-oncology drugs, which collectively should post peak sales of over $35 billion annually across all indications.

At ESMO, Bristol reported detailed Opdivo data from the Checkmate 026 study, which had already been disclosed in August as a failure in first-line non-small cell lung cancer in patients with PD-L1 expression of 5% or greater. Importantly, Opdivo didn’t show a progression-free survival benefit in patients with PD-L1 expression at 50% or greater, an area where Merck’s Keytruda did show a benefit. While the detailed Checkmate 026 data suggested that the comparator chemotherapy arm did better than expected from a historical perspective (30% better), we do not believe that Opdivo monotherapy will take much market share in this important indication. However, we had already expected combination therapy would be key in this indication, and Bristol’s Yervoy offers a solid combination drug for Opdivo to improve results. Further, we don’t think Opdivo is an inferior drug to Keytruda, as data from most other studies indicate the two drugs are fairly comparable.

Beyond first-line non-small cell lung cancer, Opdivo remains on solid footing for several other indications that represent over 50% of the immuno-oncology market potential.

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